Mortgage Rates at Historical Lows, More Financing Options

If you haven’t heard the news, mortgage rates hit new historical lows this week. Depending on the area you’re in and your credit worthiness, mortgage rates are at 4 percent, if not under 4 percent. That’s just cheap money – plain and simple.

Not only are mortgage rates at all time lows, monthly payment amounts have come down substantially since the beginning of the year. Check it out…

Mortgage payments based on the conforming loan limit of $417,000 are now 9% cheaper as compared to the start of the year:

• January 2011 : A $417,000 mortgage cost $2,180.30 per month
• October 2011 : A $417,000 mortgage cost $1,976.42 per month

That’s over $200 per month saved for bills, home repairs, eating out or your vacation fund.

In addition to record-low mortgage rates and lower monthly payments, lenders are beginning to increase the number and types of financing options available to borrowers.

For example, I recently received an offer on a listing and could hardly believe my eyes…the buyer’s lender letter stated the type of loan as being “100% financing, no PMI”! Now this lender letter wasn’t from just any mom-and-pop mortgage shop – it was BB&T.

I could hardly believe it so I called the loan officer to verify and get the 411 on the loan program. Here’s the scoop,

• It’s a BB&T in-house program
• 100% financing
• no PMI (mortgage insurance)
• credit score of at least 660
• little or no credit history OK
• income cap of $84K based on the property being in Loudoun County, VA
• interest rate, points and closing costs were competitive with traditional financing programs

In case you’re wondering, “What’s the catch?” (I did too)…there’s no catch. There were no “hidden fees” and no last-minute hurdles for the buyer (or seller). We settled on time with no problems. At settlement, the buyer told me they were extremely satisfied with the entire financing process.

This is just one example of how lenders are easing their restraints on financing. I am by no means saying nor wishing that lenders get as lax as they did 2003 through 2006. But I am happy that they’re getting away from the overly-strict lending guidelines of the latter part of the last decade.

With mortgage money being cheaper than ever and financing options becoming more abundant, you’ve got a lot of good things going for you if you’re in the market to sell or buy a home. If you would like to discuss your financing options in more detail, click here to contact me and I will send you names of some great lenders so you can pick their brains and see what’s available to you.

photo credit

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Reason #55 Why Using the Right Lender is So Important

There are many reasons why using the right lender/loan officer is important. Let me rephrase that…VERY IMPORTANT! And here is reason #55…

This comes from Allison, a home buyer in Fairfax who posted the following questions on Trulia Q&A (note: I’m not her buyer’s agent nor involved in her transaction whatsoever),

[My] lender overlooked the appraisal/financing contingencies. Closing is in a week and no appraisal yet. Seller hasn’t walked but what recourse do [I have]. I have the lender admitting in an email that no one knew there were contingencies even though the contract quite clearly stated this. My realtor, mortgage broker, and I were all told different dates for when the appraisal would be done by over the last few weeks. The seller hasn’t voided the contract yet but wants this resolved ASAP (as do we all). With only a week left, there’s not much I can do except wait but I don’t think the appraisal was even done until today (if I can believe the lender, and I don’t know if I do at this point). I have a settlement attorney and plan to speak with him about the situation but is there anything that can be done? Even if the deal goes through, I plan to address this with the company (much of this has been documented on email, although of course the loan officer is difficult to contact). I’m not blaming the appraiser at this point until/if I get more information.

This is a crappy situation to be in. Should the lender drag their feet any longer, the outcome could be that Allison (or you if you’re in this situation) loses out on her home as well as the money and time she’s already invested in the moving process. And what if she/you were timing the purchase of your new home with the sale of your current home?!

The truth is that, as the buyer, you are at the mercy of the lender you choose and you often have less control over their actions (or lack thereof) than you may think. If the lender makes a mistake or drags their feet, you may have recourse. But recourse often comes after the damage has already been done which is too late. And recourse has little to do with control.

In case the previous paragraph made you tense up and say, “WHAT?!” or “You’re crazy!”, I’m sorry to disappoint. But that’s the hard truth about real estate. If it makes you feel any better, you’re not alone – almost everyone involved in the transaction including your buyer’s agent, the seller, the listing agent and the title company are at the mercy of the lender. As James A. Garfield once said, “He who controls the money supply of a nation controls the nation.”

Enough of the bad news…let’s get to the good news.

There are ways to avoid getting yourself in the situation in the first place. It requires some legwork, time out of your day and trust, but it’s well worth the investment.

• Ask friends, family, coworkers about their personal experience with the loan officer(s) they’ve worked with in their real estate dealings
• Check the loan officer’s references. It’s not just about price as is shown in Allison’s example
• Ask your real estate agent for recommendations on loan officers
• Make sure your loan officer works for a direct lender, not a mortgage broker
• Don’t just rest on a company name. It doesn’t come down to the company/lending institution, it comes down to the individual loan officer. Just like you may get bad service from one waiter and great service from another waiter at the same restaurant, the level of service you receive depends on the individual loan officer rather than the company they work for.
• Though credit unions are often thought of as having very competitive rates and being good to their members, the complete opposite is often true (trust me, I’ve dealt with 99% of credit unions and can give you story after story)
• Make sure that the loan officer is giving you options, recommending loan types that are suited best for you rather than just the one you want/heard was the best and that they back up their claims with hard facts and numbers. The lender I work closely with and trust implicitly once said, “If you think you need your appendix removed, I would hope that the doctor you went to would check out your appendix and overall body and health prior to removing it just because you thought you needed your appendix removed.”
• Get more than one quote. Talk to 2 or 3 different loan officers. Ask them for an estimate of closing costs and interest rate and compare them to each other. But don’t forget to check their references and remember that it’s not just about price.

All of these are important, but a very important one that is often overlooked or not given enough weight is getting recommendations from your real estate agent. And here’s why…

You’re just another customer to “XYZ” bank and “Joe Smith loan officer” – you may or may not ever work with “Joe Smith” ever again and the loan officer knows that you’ll probably forget their name within a month after the deal closes. They do not have as much incentive to treat you right and go above and beyond as they do with someone they know is a repeat customer.

That’s where your real estate agent comes in… A real estate agent who refers borrower after borrower is worth gold to the loan officer. This is especially true in this market where most loan officers are closing fewer deals and making less per deal than ever before. When it comes to clients who the agent refers, the loan officer will bend over backwards and put out fires faster than you can dial “911″.  They will go to such lengths to provide stellar service because the loan officer knows that if they screw up, the agent will no longer refer them anyone and a potentially large chunk of their income will vanish.

I can honestly and proudly say that not one buyer that has worked with the lender I recommend has every been in Allison’s position. Nor have they been anywhere near such a position. This is the power of long term and ongoing relationships with competent, experienced and honest people and vendors.

Some of you may not believe me and will insist on using a loan officer of your choice despite not heeding the warnings nor following sound advice. I sincerely hope things work out for you and that you don’t end up in Allison’s position or another one equally if not more severe.

To those who do their due diligence and trust those who are honest and have lots of experience in the field of real estate and financing, you will find yourself having no such story to tell as the one at the beginning of this post. And that’s worth gold in itself.

If My Iraq War Veteran Home Buyers Just Got a 3.875% Interest Rate, Why Can’t You?

My Iraq War Veteran first-time home buyers (that’s them in the photo) and I thought we were hearing things when the lender said, “You qualify for a VA loan at an interest rate of 3.875 percent.” But we heard correctly! Qualified Veterans can get an interest rate as low as 3.875 percent on a VA (Veterans Affairs) loan.

Here’s the deal my Iraq War Veteran first-time home buyer clients got just last week:

• 3.875 percent interest rate for first 5 years
• No points
• The rate adjusts according to the Treasury ARM Rate (which is better than the LIBOR ARM Rate)
• The interest rate can’t increase more than 1 percent per year (only after the first 5 years)
• The maximum interest rate they can ever have is 8.875 percent regardless of how high future rates are
• No prepayment penalty

They are not planning on staying in their home for more than 5 to 7 years so this loan is perfect for them. A 30 year fixed rate VA loan is currently in the 5.25 percent range so they are saving about 1.5 percent on the interest rate. That comes out to a savings of $209.02 per month based on the amount they financed.

By the time they move, their rate will be between 3.875 percent and 5.875 percent. I think it’s safe to say that either of those rates will be lower than what the 30-year fixed rates will be in 5 to 7 years.

Besides saving money, why else is the low rate and cap so important?

Because the loan is assumable. This means that rather than a buyer having to go out and get their own financing/loan to buy this home, if they qualify, they can assume the existing loan and it’s terms (aka interest rate).

Let’s say rates are at 10 percent in 7 years. A qualified buyer could purchase their home and assume the loan at no more than 5.875 percent with the cap being at 8.875 percent.

And also because they’re building equity in their home more quickly. The lower the interest rate, the more of the monthly payment goes towards principal rather than interest. This means they will have paid down more principal and they will have more equity in their home than had they gone with a 30-year fixed rate loan at 5.25 percent.

How fast do you think they will be able to sell their house in 7 years when rates are 10 percent with “Current 3.875 to 5.875 percent interest rate assumable loan”?!

Can you say, “FAST!” No matter what the housing market conditions are like in 7 years, this property will stand out above the rest for the assumable low-rate financing alone.

Let’s do the math and see why.

Let’s say the property is worth $350K and rates are at 10 percent 7 years from now…

• If the buyer finances $350K at 10 percent, their Principal and Interest comes out to $3,071,50
• If the buyer assumes the current loan at 5.875 percent (the most it can be in 7 years), their Principal and Interest comes out to $2,070.38

That’s a savings of $1,001.12 per month.

In addition to saving $1K per month, the buyer will be building equity in the home much faster at the lower interest rate than they would at a higher interest rate because more their monthly payment will be applied to Principal rather than Interest.

Now you see why buyers will be all over this property like white on rice!

It’s a “win now and win later” situation for my Veteran first-time home buyers, as well as all Veteran home buyers.

If you are a Veteran and thinking about buying a home, email or call me and I will put you in touch with the loan officer that my clients worked with.

Good News For Home Buyers Using FHA Financing!

Good news for  home buyers using FHA financing! The Federal Housing Administration (FHA) has no plans to implement the Home Valuation Code of Conduct (HVCC), which has been the cause of a wide array of problems for home buyers, sellers and lenders.

The FHA is looking at alternatives to the HVCC it feels would insulate appraisers from pressure from lenders while not hurting consumers and lenders.

I’m all for keeping lenders from pressuring appraisers to “hit the number”, but the HVCC is not the way to do it. Glad the FHA realizes this too and that it’s taking steps other than adopting the HVCC to accomplish this.

If you are thinking about buying a home and using FHA financing, there are several great FHA lenders in the area you can speak with. Email or call me and I’ll send you a list (click here to contact me).